Direct Digital Q2 2026 earnings: DSP spending decline cuts revenue 23%

Direct Digital Holdings (Nasdaq: DRCT) reported Q2 2026 revenue of $7.8 million, down 23% from $10.1 million a year earlier, while diluted loss per share attributable to the company narrowed to $5.78 from $49.79. For the quarter ended June 30, weaker DSP customer spending drove the revenue decline, and both operating loss and adjusted EBITDA loss widened despite lower operating expenses.

Core financial results

DSP customers generated no revenue in Q2 2026, compared with $2.5 million in the prior-year quarter. Excluding those customers, revenue increased by $0.2 million, or 3%, indicating that the rest of the business grew modestly but could not offset the loss of DSP spending.

Gross profit declined faster than operating expenses, causing operating loss to widen. Consolidated net loss nevertheless narrowed because interest expense and other net expenses were substantially lower than a year earlier.

The EPS comparison requires context. Weighted-average diluted shares increased to approximately 709,000 from 45,000, so the narrower per-share loss does not reflect an improvement in the loss attributable to Direct Digital shareholders, which increased year over year.

Business and customer performance

The $2.5 million reduction in DSP customer spending was larger than the company’s total revenue decline of approximately $2.3 million. Revenue excluding DSP customers therefore rose to approximately $7.8 million from $7.6 million, supported by what management described as strong renewal rates.

The same pattern was visible over the first six months of 2026, although those figures should be viewed separately from the quarterly results. First-half revenue fell 21% to $14.5 million as DSP spending decreased by $4.5 million. Excluding DSP customers, first-half revenue grew $0.7 million, or 5%.

The company did not disclose separate quarterly revenue or profitability figures for Orange 142 and Colossus SSP, limiting the ability to assess how each operating platform contributed to the result.

Lower financing costs narrowed the net loss despite weaker operations

Q2 gross profit fell by approximately $0.9 million, while operating expenses declined by about $0.4 million. Consequently, the operating loss widened by roughly $0.5 million, and the adjusted EBITDA loss increased from $1.5 million to $2.3 million.

The direction changed below the operating line. Total other expense declined to $0.7 million from $1.8 million, primarily because interest expense and related financing-cost amortization fell to $0.8 million from $1.8 million. This reduction allowed consolidated net loss to narrow even though underlying operating results weakened.

The amount allocated to noncontrolling interests also changed materially. Only $0.2 million of the Q2 2026 consolidated loss was attributed to noncontrolling interests, compared with $1.9 million a year earlier. As a result, the net loss attributable to Direct Digital Holdings increased to $3.4 million even as the consolidated net loss declined.

Cash flow, liquidity and the balance sheet

Direct Digital used $1.9 million of cash in operating activities during the first six months of 2026, an improvement from $5.4 million used in the prior-year period. The improvement was partly supported by working-capital movements, including a $2.4 million increase in accounts payable, rather than by positive earnings.

Financing activities supplied $1.7 million in the first half, including $1.2 million from issuing Class A common stock and $0.5 million in related-party advances. Cash consequently declined by $0.2 million during the period, ending June at $0.5 million.

Liquidity remains constrained. At June 30, Direct Digital had $4.6 million of current assets against $32.1 million of current liabilities, including $17.3 million of current maturities on related-party long-term debt. Stockholders’ deficit expanded to $13.8 million from $7.0 million at the end of 2025.

The company was also out of compliance with certain financial covenants under its credit facility. Management said it was working with the lender to obtain a waiver, but the release did not state that a waiver had already been secured.

Management commentary

CEO Mark D. Walker emphasized growth outside DSP customers, customer renewals and a broader pipeline. He also said the company was seeing interest in AI search, generative engine optimization, AI support and web technology services, although management did not provide revenue figures or quantitative targets for these offerings.

President Keith Smith pointed to operational streamlining and a sharper focus on areas where management believes the company can create the most value. CFO Diana Diaz stressed cost discipline and liquidity management while continuing to support selected growth investments.

Recent insider transactions

The supplied insider data includes four reported sales dated June 12, 2026, as well as an April derivative-security conversion. These records are presented objectively and do not establish management’s view of the company’s prospects.

Risks investors need to watch

• DSP customer exposure: DSP spending fell to zero from $2.5 million in the quarter. Although other revenue grew 3%, that increase was not enough to offset the lost business.
• Continuing operating losses: Operating loss and adjusted EBITDA loss both widened, showing that lower expenses have not yet restored operating profitability.
• Limited liquidity and covenant noncompliance: Cash was only $0.5 million, current liabilities substantially exceeded current assets, and the company had not yet disclosed receipt of the requested covenant waiver.
• Dependence on external financing: First-half liquidity was supported by stock issuance and a related-party advance. Additional equity financing could dilute existing shareholders, while restricted access to financing could pressure operations.
• Going-concern and listing risks: The company’s disclosures cite substantial doubt about its ability to continue as a going concern and the need to maintain compliance with Nasdaq listing standards.

Summary

Direct Digital’s Q2 2026 revenue decline was primarily concentrated in DSP customers, while the remainder of the business produced modest growth. Cost reductions were not sufficient to prevent operating and adjusted EBITDA losses from widening, though lower interest expense improved the consolidated net-loss comparison. The central issues after the quarter are whether non-DSP growth can accelerate, whether cash burn can remain controlled, and whether the company can resolve its credit-facility covenant noncompliance while managing a highly constrained balance sheet.